Just over one year ago, the UK ended financial support for fossil fuel projects overseas. This meant ending export finance, aid funding and trade promotion for new crude oil, natural gas or thermal coal projects.
As the first country to do so, it was an important – and necessary – step for the government’s export credit agency, UK Export Finance (UKEF). Even more importantly, after seven months of tough negotiations led by the UK, this was followed by agreement from our trade partners, including the US, EU, Australia and Canada, to end export credit support for unabated coal power. As the climate crisis grows in urgency, so too does the need for international collaboration to protect our planet. A lot has been achieved in that year, but there is plenty more to do.
The initial commitment to end support for fossil fuel projects overseas was announced as part of the Climate Ambition Summit, held in conjunction with the UN and France in 2020. The Summit’s name understates it – it was not a moment of climate ambition, but of climate action. Now, we sorely need more and sustained action to prevent the catastrophic warming predicted by every annual IPCC report.
That is why, in September, UKEF unveiled a new plan to go net zero by 2050, forming part of a wider Climate Change strategy. This plan is the most ambitious of any export credit agency. Over the next four years, we will: increase our support for green projects overseas; provide detail on our portfolio greenhouse gas emissions and interim decarbonisation targets; and adopt best practice climate scenario analysis to minimise climate-related risks for the taxpayer. The most ambitious it may be, but we hope other ECAs will join us.
Now, we are funnelling UKEF support into the green energy revolution, identifying projects around the world and supply chains at home, all seeking government backing for investment – from wind and solar farms through to hydrogen. Not only are these renewable forms of energy more cost effective, they are key to long-term energy security. It’s why, in the Government’s recent British Energy Security Strategy, we announced that the UK will accelerate the deployment of wind, nuclear, solar and hydrogen which could see 95% of electricity being low carbon by 2030.
Supporting the development of exports in new clean growth sectors and technologies remains a priority. As part of our commitment to achieving net zero across its portfolio and operations by 2050, UKEF has offered green economy exporters access to increased lending capacity through its Export Development Guarantee, providing extended repayment terms so green exporters can seize new opportunities and invest in future green technologies.
To develop our financing capability in this highly specialised sector, we have established a new 20-person Renewables and Transition Underwriting Team. This dedicated team allows UKEF to bring its widely-recognised expertise and innovation to support increased demand from UK businesses looking to play their part. UKEF is also helping to internationalise these supply chains through its team of International Export Finance Executives (IEFEs) who act as the eyes and ears for UK plc across the world, sourcing, securing and facilitating opportunities for UK suppliers. Based in strategic trading markets across the Americas, South Asia, Asia Pacific and Africa, and working with HM Trade Commissioners and British Ambassadors, they are a key interlocutor with governments and multi-national companies looking to buy in the UK.
We recognised that for many businesses this truly is a transition, and we cannot expect these businesses to easily adjust their business models. Those businesses working in offshore oil and gas have many brilliant, highly skilled individuals whose livelihoods need to be protected, and expertise re-deployed. Indeed, these sectors have been a major British industrial success story, so we cannot lose sight of that. These skills are transferrable across the wider energy sector, and businesses need the financial flexibility to make that change.
The North Sea Transition Deal, announced in the same month as the ending of support for fossil fuel projects, has enabled UKEF to support businesses making the transition from fossil fuels to a greener model – a task that is essential to securing meaningful, lasting change in the sector. The deal was created precisely for this important cause – to bring the UK offshore oil and gas industry into the fold in the fight against climate change. In the process, it will unlock up to £16 billion in investment and secure up to 40,000 energy jobs.
In recognition of the need to design innovative tools to meet this challenge, we introduced the Transition Export Development Guarantee, providing working capital for exporters looking to make the transition and adjust their business model, with repayment terms of up to ten years from five. In 2021, we issued UKEF’s first sustainability-linked loan; linked to environmental targets incentivising companies to ‘go green.’
Aside from our responsibility of stewardship towards the planet we all live on, the clean growth industry is rife with opportunity: renewable energy now accounts for over a third of global energy capacity. Supporting more and cleaner energy sources is not only better for the planet but it is more affordable, reducing our reliance on more expensive fossil fuels. With our support, more businesses are stepping up to the challenge and embracing the opportunity.
Furthermore, experts predict that the low-carbon sector of the UK economy will grow four times faster than the rest of the economy in the next ten years, delivering £60-£170 billion in goods and services export sales between 2015 and 2030. UKEF can support a range of businesses across the clean growth industry to help them respond to global demand as we move towards net-zero.